francine: the new fed chairman opens the door to raising rates. stocks dip on his hawkish tone. theresa may will reject the brexit deal and there are just three weeks left of the transition phase and the parameter faces increasing pressure from rebels in her own party. in amazon at the door. the retail giant will pay $1 million for the smart doorbell extending its reach into customer homes. ♪ francine: good morning, everyone and welcome to bloomberg surveillance. i am francine lacqua in london.

this is what stocks are doing here in europe and across the board. down a touch, down 0.3%. a little bit of concern from investors about the hawkish tone from jay powell. we seem to be moving into pricing in four hikes from the fed. i'm looking at yen. teh boj said they will continue at the same pace for bond buying and you can see the dollar-yen the dollar-yens, .18.7 point coming up on surveillance, we talk equities and positioning after jay powell's first testimony with mark burgett from threadneedle, which has 180 billion dollars in assets. then, we speak to larry summer and get his take on the fed in an exquisite interview and then we will be joined by the bayer

ceo. eight in the u.k. conservative party lawmakers have backed amendment calling for britain to keep close ties to the european union after it leaves the block. the size of the rebellion is potentially enough to wipe out theresa may's slim working majority in the house of commons. they want to keep britain in a customs union and the number has risen in recent days. more could still add their names. s son-in-law's senato and senior adviser has lost his top security license. he can no longer see the highly classified daily brief. kushner's reduce excess raises questions as to how it will affect his role as trump's main middle east negotiator.

official manufacturing gauge fell the most in five exportn february as orders fell. in manufacturing pmi jumped to 50 poin.3. they are working to repeal presidential term limits. fell, inactory output retail sales slid more than expected. industrial production contracted at 6.1% from january to december, the biggest drop since march 2011, when the country was hit by an earthquake, tsunami, it nuclear meltdown. -- and it nuclear meltdown. morgan's ceo says he will fight for the same type of deal that amazon is expected to win when it takes the location of the second headquarters. tax breaks have been rolled out

across the u.s. and canada to win the location. jamie dimon said he will be on the phone the moment the news breaks. >> i also have to confess that on the list for amazon is columbus, phoenix, dallas, chicago. yeah, this employs 20,000 people and the second they give benefits to those people, you can be sure i will call the government up. and you better believe it. fight for your company, folks. no one else does. nejra: global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm nejra cehic. francine: thank you, now let's kick it off with the markets. down across the globe after investors a hawkish tones from jay powell.

the new fed chair opened the powell four rate hikes, said the strength of the economy gave policymakers confident that inflation would reach the target. >> each member of the fomc will be writing down a new set of projections in a new estimate of appropriate monetary policy as we get into the march meeting. what we've seen is incoming data to suggest a strengthening of the economy. we have seen strength in the labor market. we have seen data that will, in my case, add some confidence to my view that inflation is moving up to target. fiscal policty changes can have an effect, and changes of this size can have an effect, and that can be seen in the path of policy. the flattening of yield curves in the past has been a precursor to recessions, and the fed had to raise rates quickly to hold

inflation down. that's t not the situation we have now. francine: let's get thoughts on the testimony. burgetts, now, mark and mike bell. thank you for joining us. mark, welcome. i think this is the first time you are in our new headquarters in london. let me start off with what the markets are pricing in. they were pricing in three hi kes. it now looks like it is changing. was the message clear enough for jay powell? mark: i think so. economies are expanding. we have had nine years of monetary stimulus and global economic growth.

i'm not surprised that the fed chair is confident in continued growth in the u.s. economy and will have to tighten monetary policy to reflect that. francine: we saw this with 10 year yields. will this affect volatility, or are the markets taking their stride? mark: i think we are ok for now. , thatk yields reaching 3% would potentially start to unsettle markets. it is all about one happens to inflation. but for now, i think we are ok. i think the markets are taking comfort in their strength of the economy globally. what do you think happens after 3%? after 3% does it go back down? periodink we will see a of consolidation. we've been short on the way up for yields, but for me,

there is the potential for a pullback with yields going down., on a 12 to 18 month period, we could maybe even see 3.5%, but i do not think it will be in a straight line. i would not be too concerned about bond yields rising dramatically from here because we have thought during the last year that there would be four rate hikes in 2018. the market is pricing in a probability of that, but i think there is a little bit farther to go. francine: this chart shows a neutral interest rates, versus t rate, raisingnds the question of how far can rates rise during the cycle. what does the weaker dollar give you in terms of financial conditions? know,well, kyoyou financial conditions are clearly pretty loose.

as we said, we are at a relatively unusual stage in the economy where we have had nine years of expansion and now are getting fiscal stimulus. so, this is an interesting period. francine: dangerous because of the overheating? mark: yes. francine: what does that look like? the overheating economy. does that mean the fed can surprise on the upside and that treasuries can move very fast? mark: there is the risk of more interest rate rises. francine: mike? when it comes to overheating, is that the biggest risk, or are we nowhere near that? mike: i think that is the biggest risk, but we are worried about the economy if we get rates around 3%. even if we get the four rate hikes we expect, that will only take you to two with 5%. it becomes a much trickier question once you look into the

middle of 2019, though. weduring the middle of 2019 have base rates at 3%, then we worry about the corporate to debt service ratio, for exampl e. francine: where do you take position, and where do you want to go short on? favor european and japanese and asian equities, because there is better value there. the economy is growing and corporate profits are growing nicely. valuations are still just about ok and there is still valuation andort in a relative sense an absolute sense. but the outlook for rates in the outlook for bond yields is a critical part of that equation. there will be a point at which that starts to unravel at the margin potentially. but for now, given where interest rates are and where bond rates are, we think equities are still a good value. looking at credit, we have been

taking money out of corporate credit, particularly high-yield where we think valuations are beginning to look quite stretched. francine: are you worried about a strongly pricing in germand bunds? mark: there has to be a risk. if we had a german in charge of the ecb, we would have tighter monetary policy and the german economy is growing pretty strongly. there has got to be the risk that german bund yields pop higher. francine: is that one of your biggest risks, mike? mike: certainly on the credit side we have been taking some risk off the table in the high yield. so, we prefer equities to credit, definitely. on the equity side, basically, markets, with more volatility will broadly trend upwards until we see a trend in the macro-data. 3.5% willink 3% to cause a problem because it will be beneficial for financial stocks.

we will be more concerned when higher interest rates at the base level starts to cause problelmems for the economy, but at the moment, the labor market still looks healthy and the corporate are telling you, perhaps aided by the shale pick up, and the capex over the next six months looks positive. francine: is there anything we can take from the volatility in the markets? funds, that would then spread to equities question mark is that a word of warning? force that part of the normal market from now on? it's possible we get more volatility. over the last year or two, we enjoyed the period when the business surveys went from around 50 to extremely higher levels. now, that makes it more difficult for investors. they have to distinguish between, are we going from a

great economic outlook to one that is just ok? or are we going from great to good to a much worse outcome. over the next year, i think we will go from great to just good. will actually be printing something more like 2.5%. once we get into 2019 it becomes a much more tricky question. francine: are you expecting more volatility in 2019, or does it spread to credit? mark: we have seen a mini-selloff. and there is a degree of complacency in the system. i think there is likely to be an uptick in volatility from here. we'll go from very similar and lower interest rates, potentially moving into more monetary conditions. that could cause an uptick in

volatility. francine: thank you, mark burgess, stays with us. larry summers joins us at 10 :30 a.m. up next, the tory brexit rebellion is on the rise as eight conservative mp's back a movment. can theresa may survive this challenge to her authority? next.k u.k. this is bloomberg. ♪

francine: economics, finance and politics. this is bloomberg surveillance and the team made it into work.

you are looking at live pictures from our rooftop from the very snowy city of london. we have not really seen roads like that -- i guess the traffic in some parts of the city. it has been unseasonably cold and snow in europe. take, for example, rome, blanketed in snow a couple days ago. as construed to the bloomberg business flash with nejra cehic. nejra: bayer might sell more businesses while in the process of closing the $66 billion acquisition of monsanto. it aims to complete the deal in the second quarter. there is an april 5 deadline for a decision from european regulators. bayer ceo joins us after 11:30 u.k. time. the u.s. commerce department has

a slapped stiff duties on aluminum from china. that is after it has been reported that they are dumping the product in the american market. duties from 49% to 106% will be imposed on chinese aluminum foil. the trumpet ministration also from 17% to 81% on the unfair subsidies that chinese regulators received. the hotel operator agreed to sell a majority stake in the property business. a group of investors, including saudi arabia's public investor fund, join forces to purchase an initial 55% stake in accor. and amazon has agreed to purchase ring for $1 billion. jpmorgan advised ring on the sale. this move health amazon expand

further into the consumer market, including providing security for package deliveries. amazon has been pushing for a bigger presence in homes through connected devices, such as the echo smart device with the assistant known as "alexa." francine: eight british party makers have back in ed an amendment to reverse her policy, which could threaten political survival. this could be enough to wipe out may's slim working majority in the house of commons. a number of lawmakers who want britain to remain in the customs union have risen in racent days. joining us for more is mark burgess and mike bell from jpmorgan. welcome to the program. first of all, for all of our viewers, if you have a moment to spare, just subscribe to our brexit bulletin. today, especially, it is

brilliant. you put in the title, boxing at home may fight in brussels. that sums it up. she is having a tough time with her domestic constituency. reporter: that is right. the number of conservative, pro-eu rebels who are willing to put their name to this amendment has risen. and that is since jeremy corbyn came out and made his speech in favor of the customs union and since that amendment was initially table. they will not be a vote on this anytime soon. the government has postponed the entire bill to kind of postpone the crisis point, if you like. you might also say, how do you legislate for a negotiating position? i think it is clear that what they are trying to do is send a message that they do have the numbers. depending on the labor, there are a couple labor lawmakers who also want the hard brexit. they are very, very close. we are hearing more tories add

their names to that amendment. you have got rebels on the pro-eu side and then at least 60 pro hardbrexit rebels on the other side. francine: i mean, how does it she deal with both sides? or does she have to pick a side based on the difficult arithmetic? : what she has been doing so far, she asks of europe, a decision that does not cause a crisis. the eu is not going to buy it. the strategy is to postpone as long as possible the decision. at some point, we will either have a crutch during the summer, or when the final deal comes back from brussels. that is when you almost certainly get a crisis. francine: march 22 there is a huge brussels summit./ that is when we were expecting

to start talking about the transition deal. is that going to be postponed. is that a softer deadline for something, or does that get pushed back? emma: it is a pretty hard deadline. many businesses said they will start enacting their contingency plan. even if they do get a transition by the end of march, it will not be legally binding until the withdrawal deal is inked. it will be a political commitment. barnier after i said there are still big areas of divergence. said yesterday there are still big areas of divergence. francine: do you get the brexit bulletin daily, mark? you should. do you need to look at lo blow-by-blow what boris johnson does, or what theresa may does? does it impact the pound directly? mark: i think at the margins there is a huge amount of

speculations as to how brexit will unfold and the markets have to digest all of that. as just discussed on the one hand, we have got the tory party, and you want sovereignty at all costs. that is probably not great news for u.k. assets. and we have got the swing party, who want to maintain the best possible trading relationship with the eu, and that probably is in the interest of british business. and there is a trade-off as we navigate towards a settlement, depending on which side of the line we land. that is what markets are digesting and contemplating and thinking about minute by minute. francine: first of all, mike, where do you see pound? modeling jeremy corbyn as prime minister in your economic data? mike: when we look at our portfolios, we do not want what happens in u.k. politics to be influencing our relative performance.

we are wherever possible, trying to neutralize our risk to u.k. assets. that's because there are all these political developments. but on the other side, it looks quite likely that real wage growth will start to improve and inflation comes out as wage growth s picks up. there are positives on the wage growth side, countered by these risks on the clinical side. when we speak to clients on the u.k., we do not think it makes sense to be overweight in mid-cap stocks. if we expect large-cap stocks to outperform, the industry is massively underweight on the small-cap. it makes more sense to be neutral. francine: we have picked up something from mark carney. he said, we will go wrong again, not talking about politics, but the economy during a speech on

monday -- he said, something will go wrong again, even if we do not know what or precisely when. he said accepting this is our best to strategy to create an anti-fragile system that can withstand potential shocks when they happen, so what does that mean for your customers in the u.k.? mike: we have to think about where potential valuations are, and where growth is best earned. i would agree that the outlook for the large, international companies is probably more interested in that. francine: is pounds the best way to play any kind of brexit de cision? overlyan, that is simplistic. the big caveat is 75% of you can profits come from overseas. the u.k. stock market is not -- so, you have to pay very close attention. francine: so, what is on your radar for the next three days?

emma: well, anytime now the draft of the withdrawal agreement will land. it will be very political. the u.k. has already said they will fight back. so, we have got another row. then we have may's big brexit speech on friday. look for signs that she is trying to get the tory rebels back into the full without alienating the hardliners. he ise eu president, coming to visit may on thursd ay. we will see if he gives any input. francine: thank you, m emma ross-thomas. we will be back with mark burgess and mike bell. ♪

francine: economics, finance, and politics. this is bloomberg. the new chairman of the

federal reserve has open the interestaising the rates. shape thatny factors economic outlook, some of the turned intove headwinds. fiscal policy has become stimulative, foreign demand for u.s. exports is on a firm trajectory. nejra: in the u.k., eight conservative lawmakers have called for britain to keep close european ties. the lawmakers want to keep britain in a customs union after brexit. the number has risen since the amendment was published. trump's son-in-law and senior advisor has lost his top-secret clearance.

jared kushner can no longer attend to some meetings at the national security council, see the daily brief or war-related intelligence. it raises questions as how it trump'sect his role as peace administrator. jpmorgan's ceo will fight for the deal -- the same deal amazon is expected to win when it fights were its new headquarters. jamie dimon says he will be on the phone the moment the news breaks. on the list for amazon was columbus, phoenix, dallas, chicago. we will have 20,000 people. the second they give benefits to you can be sure i

am calling the governor. i mean it. i am not kidding. for yourto fight company. if you do not, no one else does. nejra: global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. topcine: china's policymaker is gathered for a conference next week, where they will address issues. deficitl cut the budget target for the first times has 2012. the goal will be 2.9% of economic output. will it be enough to address china's debt problem? that is one question being asked in abu dhabi. >> as you laid it out, a lot is coming up for china. decision-makers were telling me

don't read too much into some of the other developments. you should be looking at the possibility of a trade war between the two heavyweights. the latest thing, slapping duties on aluminum foil. that is coming as a bit of a surprise. by a professor from the london school of economics. you have asked a lot of people here -- how big of a concern is it that this is inciting a trade war? >> pressures on trade is one of the major risks that could trigger aftermath. that escalation is happening. that is not what china would like to see. understand both

sides would be hurt very much. china is going to move away from a global, systemic taker to a giver. of political lot pressure from the people, chinese businesses who would be ,ressuring the government pushing back against trade and development. other development is the two-term limit for the chinese president could be scrapped. what is your take away from that? is that a worry or benefit because of the concentration of power that would allow streamlined decision-making? it is a one-man show. a one-man show.

it is more complicated than that. there is a system of balance and power and checksum balances. it is true the major difference is takingnt xi some of the power controlling the economy, unlike past presidents. china is goingen through transition. where the reforms have not been up to pace as they should be implemented is the lack of that strong power, which president xi has provided. thinking about ,ow to create a better system -- >> you mentioned the bad loan, the deleveraging. are they moving fast enough and with the right kind of measures

to solve this problem? >> the debt issue is coming in to calm waters. they have issued a series of measures, including cooling down , bring the bubble regulatory framework under one umbrella. policies are in place so we see a slowdown in debt. one thing people forget is there are reasons a financial panic is likely, not least because 70 trillion are assets and the ability for the government to coordinate in case something happens. where does that leave --? it is pushing on with its reforms. reality is, you have all of , it willtral banks

lean to the possibility of --. that is global concern when these central banks are tightening and china is trying to cool down, level off its debt. rnb is one of the considerations. now that the depreciation of the b -- they have wiggle room on monetary policy. a process ofgin these asset bubbles. you don't think it will be that? you think it is geopolitics? >> i think it is both. could be a risk.

geopolitical risk could be a trigger. it plays out. how thank you for your time. plenty more coming up here. francine: thank you. should investors be concerned about china? still with me, mark burgess and mike bell. mark, do you worry because the debt levels are neutral for 2018. the authorities will do what it takes to keep it stable. lot tohere has been a worry about in china for some time. they have managed to navigate through the issues that have fallen out of reduced monetary --.cy and one has to conclude because the authorities have leaders to poll

than the average government, that they have managed to get this far without a financial accident. there are risks, bubbles formed in many asset prices. done that globally. it is important we do not see the financial -- in china. one ought to have confidence they have a chance of pulling that off. francine: when do you find out whether they do or not? mark: there is not a single point in time. we have be come -- we have become confident that the risks have fallen away. not completely. leverages high in the -- leverage is high in the chinese financial system. there is a potential to see wealth destruction if that ends badly. i have a decent chance of not having that end badly. china, youu look at

have a picture where debt is high, but they have the potential to stretch losses on over a long time. they can stretch those losses out. economy will grow at least north of 5%, this year, 6% over the foreseeable future. that is less worrying for us if you think about an economy growing at 1%, 2%. it is something we monitor carefully. probably, the story is positive. the long-term view, people forget urbanization rate in china is 58%. to, ass a lot of growth people move into the cities. we still think the growth story is good. francine: we had a story about one of the advisors saying china will not intervene in the currency markets soon.

you take those comments at face value? on what depends happens. if you see significant swings, you will get intervention. withare relatively happy what is going on recently. there has not been any need, you are not seeing capital outflow. the story has gone away for the moment. were it to return, they would deal with excess volatility in the currency. for now, it is not a major concern. up next, amazon comes knocking. they snap up smart doorbell start up ring, taking another step into customers' homes. this is bloomberg. ♪

francine: this is bloomberg surveillance. let's talk tech. amazon has agreed to buy ring, a company that makes video cameras, doorbells, and other security tech. it pushes amazon further into the smart home market. ringmorgan chase advised on the sale. , mike bellwith more from the jpmorgan, who was not involved in the deal, alex. thank you for joining us. what are they buying? this seems expensive. it is a doorbell you ring and you see the person who is ringing it on your phone. alex: when i moved to san

francisco, i could get a voice on my phone. this, you will see an image of the person. delivery, a family friend, and it connects you to your front door. francine: a couple of years ago, google bought nest. alex: nest has expanded into this space. more for nest. $3.2 billion. they failed to integrate nest. they are just now integrating it into google home. amazon does deliveries. they are spending capital putting all sorts of places where you can pick up packages. this would allow someone to come to your front door and drop the parcel on europe porch. francine: are their security concerns? i don't know if this is a regulation issue. alex: this is why it has a

camera. you can unlock the door remotely. at my home, i could unlock the door but pressing the star button once i talked to the person. francine: my three-year-old gets a hold of the phone while someone is ringing, it is going to be a mess. mark, how much of these trends are valued in the tech companies or how do you figure out what the next trend is and now is the time to invest. has been so dominant in market returns in north america. the pace of change we are seeing, the ability for companies to exploit competitive advantage and drive it in five to 10 years, where it used to take 50 to 100 years is breathtaking. we have to pay close attention to these trends.

amazon may be able to earn from its marketplace in the future. mike, is this dangerous because you can invest in companies that go nowhere, or do you wait until they are at critical level and buy into much -- by an in too much. to analyze that will be good for boosting productivity on a global basis across different industries. tech is not sector specific. it builds us through industrial companies, light logistics firms, for example. there are some tech stocks out there which are overvalued. we can find good tech stocks that have 20% earnings growth forecast trading at about 16 times earnings. those are the stocks we want to buy. alex: this company was offered

on the american equivalent. they offered a 10% stake. that would be worth $100 million. they did not take it. if you look at amazon, they have whole foods, they are buying ring. what would it become? do you see it developing into a tech, home where company? alex: apple wants to be considered a retail company. when it comes to antitrust concerns, they are compared to walmart rather than google or facebook. the more data they have them what kind of things you buy, the more they can predict what you

might buy next. they don't see boundary to what they want to push into. the hurdle they face is regulation. they don't want to be confronted by the fda. francine: thank you. , who moved over from san francisco. europeanalk about valuations and the ecb. up next, italy heads to the polls. with the controversial media titan in the running, our markets to relaxed? we will discuss that next. this is bloomberg. ♪

economic, finance, and politics. this is "bloomberg surveillance." polls, theto the markets are showing little concern in the run-up to the vote. are investors to relaxed about risk of an unexpected outcome?

even if there is a hung parliament, which is probably the most likely scenario overall, we don't know with whom or what parties, shouldn't the market focus on that and be worried about it? frenchiven the dutch and election, investors have become relaxed about the outlook for eurozone politics. wobble.he catalonia that aside, there is a degree of consensus forming within the ofozone, the objective staying in the eurozone, making sure the objectives are fulfilled. that is what investors are focusing on. that, macroeconomic backdrop is supportive. the economy is growing nicely. indicators show positive expansion. unemployment is falling, credit

conditions are improving, bank lending is picking up. usecine: if we look at unemployment, it is still high. youth unemployment, it is still high. they could vote for a party that pushes them out of the euro. mark: they could, but those conditions have been in place for some time. it is about the trend. the trend is one of general improvement. a significant uptick in confidence in many european countries, where only three or four years ago, it would have been a real concern. it has gotten better. that is what investors are focusing on. francine: you told me you like european stocks. even if you have a german as

head of the european central bank? tighter will get monetary policy is that is the case. that is not a bad thing. fundamentals pick up the slack, it is appropriate the monetary policy titans. it would be -- the monetary policy tightens. we could live with that. it is very stock specific. the challenge we face, the strongest part of the domestic europe is where growth is coming through is finding exposure. whether one looks at financials or domestic stocks, that is where things look interesting. francine: one thing of concern, is it high euro level? could that hurt the european economy? be a the tail risk would

big uptick in european inflation. monetary policy would tighten quickly. francine: mark, thank you. it was fun having you on. surveillance" continues in the next hour. tom keene joins me. we will be talking with larry summers and what we heard from jay powell and will be looking at the markets. sending --ks aren't are extending their loss. this is bloomberg. ♪

francine: the new fed chairman opens a new door to raising rates four times this year

and global stocks dip. we will hear from larry summers on the new era at the fed. he's live from abu dhabi. theresa may is said to reject the draft of the brexit deal. there are just three weeks left to agree on the transition phase, and she is facing increasing pressure from rebels in her own party. tom, the team has battled the snow to get into work today. a lot of focus is on the weather, but actually, focus is on markets overall because of what jay powell said, and we are looking at moves as well. tom: we see the two year coming up as well. do you want to build a snowman? were you up singing all last night with the cherubs? francine: i was of all morning singing. when i woke up at 4:00 a.m. this morning, it was covered in

snow. for central london, this is unusual. that is rome, by the way. tom: i was going to say, is that the coliseum in london? [laughter] francine: it wasn't. we will get more on the snow, but let's get straight to the bloomberg first were news. taylor: jared kushner has lost his top secret security clearance. according to a person familiar with the matter. that means he can no longer attend a summit meetings of national security council or see related intelligence material. he's still waiting for the fbi to complete a background check. as you were mentioning, jerome powell has opened the doors to the central bank raising interest rates four times this year. on capitol hill, he acknowledged his stronger economic growth might lead policymakers to rethink their plans for only three rate hikes. it was his first testimony before congress before taking office. the trump administration has

onosed stiff tariffs aluminum foil from china. they are selling the foil in the u.s. below market value. and of the conservative party's rebellion against british prime minister theresa may's brexit policy is growing. eight conservative lawmakers have backed amendment, calling for the u.k. to keep close ties to the european union after it leaves. the attempt to reverse her brexit position could threaten her political survival. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i am taylor riggs. this is bloomberg. bonds, boies, bonds, ndsnds, bonds. we are looking at the two year higher. futures, up 72 right now. curve flattening. the 10 year static and the two

year yield, higher. you get a narrow distance in the .62 on the spread. the vix backs up 17.94, with the dow nudging up, neighboring the 24,000 level. will leave it right there. francine: i'm looking at a similar data check. we have heard from jay powell. and we look at the global stocks, and european stocks. let's at the board up. i think we have it. you can see stocfkks in europe, down a touch, an extension of the selloff. powell seems to have an impact on global stocks. i am looking at yen, as they said they would continue the bond purchases at the same pace as they said they have been and

we are getting inflation data from the euro area. a little slower than the previous month, so that matches previous suggestion. tom: this is a chart that started percolating this weekend and i heard people talk about this. this is inflation, take out shelter, in particular, take of the expensive cities of america. back to the time of paul volcker in 1980, the huge inflation of 1974 to 1975, an amazing 30 year decline in disinflation. that is without san francisco. $4376 per square foot in south beach, overlooking the harbor of san francisco. take a washington, take out new york and you get a really different view of ifnlation in a merica. chartne: tom, this is a looking at neutral interest rates, estimates. that is versus the real fed funds rates. my chart raises the

question of this cycle. so, as we were saying, our top story, jay powell's first testimony before congress. treasury yields rose as he adjusted, saying four rate hikes is not out of the question. jay powell: my personal outcome has strengthened sensince december and each member of the fomc will be writing down a new monetary policy as we go into the march meeting. we have seen incoming data that suggests a strengthening in the economy and we have been continuing strength from the labor market. we have seen data that will, in my case, add some confidence to my view that inflation is moving up to target. fiscal policy changes can have an effect and changes of this size can have an effect. and that can be seen, of course,

in the path of policy. flattening yield curves have been a precursor to recessions but largely because in many recessions, the fed had to quickly raise rates to hold inflation down. that is not the situation we have now. now, ginajoining us martin adams and a simon french. so nice to have you, first of all, in london. welcome to snow wy boston. gina: i am ready to go back to warm new york. francine: back to tom keene. when you look at jay powell's testimony yesterday, it was preclear. what surprised you? the fact that the markets are on the same page? jay powell will be right the middle and give one message to the markets? or were you surprised he was so positive? simon: i was not surprised that

he was positive. i am surprised that the focus is not on what he said, and what the monetary policy reports had. because he does through the pages of the report and he still found a federal reserve uncomfortable with the transition mechanism from a tighter labor market, from a weaker dollar, from augmented fiscal plans for the white house, and how that transmits to inflation. i like tom's charts on stripping out some of the core real estate stuff. the fed alluded to that. there are unexplained interdependencies. dono't think we are ready to go from three to four. francine: how did you interpret it? is it from three to four? gina: the fed funds futures market is rather skittish.

we will see it move around a lot over the next couple days. try not to read too much into it. that said, i do think this is about a market trying to get used to a new fed chairman and the wave communication is different from chairperson yellen's ways of community getting. recall the way chairperson yellen always approaches things. she focused on the labor market and in particular, on these alternative measures of labor participation, suggesting the labor market was not as strong as we had hoped. his skew seems to be more towards, the labor market is strong and we will probably see wage pressures going forward. i think that was the biggest difference for the market and you saw that payout through the and real estate performed pretty poorly, despite the fact that we had good housing numbers yesterday. the market is trying to digest a new reality, a new fed chair and maybe a new focus on inflation

pressures that has not been there before. withsimon, let me start you, but do both of you, let me bring this back up on the screen. you can pull this up very easily on the bloomberg search engine and find out what people both say and do. here is governor carney on may 11 last year. he said the bank of england wants to see pick up in domestic inflation. gina martin adams and simon french, starting with you, simon , will we see the same headline from jerome powell? think youl, i struggled to see an aggressive pick up in inflation, meeting the dot plot in may will facilitate a new set of inflation forecasts. i don't think you necessarily need to look at the dots on interest rate expectations. you see the dots on fomc members, regarding their nearterm expectations because that is the key transmission mechanism that remains broken in most of the models.

i do not think a change in chairperson has changed that dynamic and the underlying attitude of the fed. tom: where is the inflation, gina? this is critical. gina: i think you are right and we have not really seen the inflation. i think you could argue, do you really ignore housing? that is a huge cost for some folks. maybe we do want to look at broader measures of inflation and on that front, if you look at inflation expectations, they have picked up quite a bit this year and maybe we are paying attention to financial market inflation expectations, as opposed to the real data to get a better sense of where inflation is headed. but i do think this is about nuance and about a fed chair that is looking at the of side effects of growth. he is looking more at things that have changed over the last few months. taxad a big change with the policy, which is stimulus sales on the s&p 500 now, and that should be reflected in some

inflation pressures. tom: we are waiting for a conversation, lawrence summons with erik schatzker in a bit. we will continue with mr. french and mrs. martins adams in our next hour on the challenges within the hedge fund business. it has been brutal for many. steve iceman on housing securities. housing eisman on securities. this is bloomberg. ♪

tom: bloomberg surveillance and i wanted to clarify one thing. i found the important date, june 20 of last year. these are the headlines on my terminal. it is hard to see, but this headline right here with the change in the dialogue, mark carney says domestic cpi pressures are subdued and wage growth is anemic. they misspelled anemic, but that is ok. francine: it is the british spelling, tom. we spell everything different here. i don't know if it is, but let's say it is. june 20 was exactly one year after also we had of course, the brexit vote. i think the inflation pressures he is looking here, inflation being on the upside are a little different to what we are seeing in the fed. let's change gears and the u.s. commerce department has increased duties on aluminum foil from china. they say they are receiving unfair subsidies and dumping the marke product in the american m. the top economic adviser is expected in washington for discussions over the nation

trading and economic relationship. current -- is at the as ever, it is enda currean. is china going to retaliate? enda: it is another step in these measures the u.s. is taking against china. we are waiting on the aluminum reports from china. we are not in a trade war, but there are creeping tensions. economist are worried about this. that is what we heard from those going to washington this week. francine: we need to put this in the context that this is the week that president xi extended his tenure beyond 2023. what does that mean for china, and the rest of the world? enda: certainly, it is over the

consolidation of xi's power, doubling down on the narrative with what he wants to do in the economy. there might be a little bit of plea six line from the u.s. delegation, saying, you have shown a willingness to tear up your own internal rules, but what does that say about the global stage? a cloud is cast over china, i think. there's a bit more pressure on china when it comes to these traded talks because it is not just the u.s. other countries are complaining, too. tom: this is incredibly important. singh joined us yesterday and of course, his classic one volume on hong kong at the university of london. he was adamant that this was more than cosmetic. where is the next speech that we get clarification from the president? we are heading into a big

week. we just have had an important two days of meetings wrap up today. next week we head into the mpc. there we will hear plenty of dialogue from the top officials in the party, who will set out the economic plan for the year ahead, the growth target and the fiscal strategy. and beyond economic policymaking, too, of course. not to get you in trouble, but professor singh made very clear that he looks at xi as a leninist. is there a flavor of communism in china? enda: they are playing their key

role on the global stage, but ultimately, they are keeping a firm grip on the economy. the central government is not stepping away at all and we saw that with the takeover of anbang last week. it is probably described best as kind with their own characteristics. tom: thank you, gina martin from bloomberg intelligence. what does it say about global portfolios? gina: global portfolio managers are tending with a lot of currency movements right now. the u.s. is outperforming so much and a lot of that has to do with the dollar. it is depressing some other opportunities overseas. this is not just another publication. as the u.s. trade deficit continues to grow, we got more news of that yesterday, this administration will continue to fight back on that and that confidence matters for investors

that are looking for other opportunities. tom: i am thrilled you brought that up. i'm going to make a chart for that. eisman willteve join us and i will talk about alternative investment and volatility out there. also, jerome schneider will join us from pimco and his knowledge of the two year space. stay with us. this is bloomberg. ♪

taylor: this is bloomberg surveillance and i am taylor riggs. sales are more asset possible as it tries to close the $66 billion takeover of monsanto in the second quarter. bayer has already agreed to divest the entire vegetable seed business. there is a deadline for eu merger regulators to come out with their decision on the deal. and amazon is trying to extend its reach into customer homes. according to a person familiar with the matter, the e-commerce giant has agreed to purchase startup ring for $1 billion, which makes cameras and/or bills that allow remote monitoring. that is your bloomberg business flash. tom: thank you, taylor. in london with us, simon french and gina martin adams of bloomberg intelligence. gina, after a sterling career at wells fargo where she had the courage to remain in the great bull market.

what is your great bull market enthusiasm right now, gina? i never heard you say "go to cash." where are you now with that angst? igina: i think both the fundamentals and the technicals are supportive. 2018 is the bull market will slow to a saunter from a charge. it seems that saunter will be more volatile than the markets we have had in the past. generally, markets see this competitive dynamic play out between monetary policy makers tightening. policy, butky for it is a continuation of the bull. frankly, stocks follow earnings growth and earnings are expected to rise 18% this year. they could accelerate faster if we get more economic momentum out of this tax reform and that is not an environment that we can' remain in stock. the dividends are certainly suffering from the relative

value in comparison to attractive yields elsewhere. other than that, the cyclical stories are still there. francine: what is your take on tech. there is the story about amazon buying ring, which is a doorbell that allows people to come in. this is a similar to move to what google is doing. gina: tech is an interesting space because the competitive dynamic has always been there. amazon is technically a consumer discretionary company and continues to eat away the share for the tech sector at large. tech freely led the surge in earnings last year and now has to face comparisons to the extorted every environment in 2018. that could present a little bit of a headwind. you also have to consider the regulatory environment at large. tech is a little bit questionable, considering the russian meddling news and how that could impact the regulatory environment for facebook and the like. folks are a little bit nervous

and that could constrain valuation expansion. with tech, their massive changes going on. amazon is a good example and you are starting to see a little bit of rotation of leadership in tech. this is the one sector that dug its way out of the corrective process and is making new highs, but leadership is coming from communication stocks, which is a little bit bizarre. francine: we are getting breaking news out of the u.k.. the for -- the tory rebellion has grown to 10 lawmakers. we will ask simon french what he thinks of this, but it is clear that this is revealing for both sides. we will talk about this next. ♪

♪ tom: bloomberg surveillance. tom keene in new york and francine lacqua on her way to italy later in the week if she can get through the snowdrifts

at heathrow. simon french on the united states of europe right now. how critical is the italian election to the rest of europe or is it a sideshow discrete to italy? more thethink it's latter. if it had been 12 months ago, we would see it as part of a more systemic challenge to the united states of europe. if you look at what has been a partial recovery in the italian economy, the slow reduction of loans, the stabilization of the banking sector, you question whether that will permeate to a waning of popular support and therefore a fairly messy outcome or whether you see the surge we start to pass through to lawmakers. i do not think it is systemically risky for the european area not least because the macron-merkel addenda --

agenda drives this. tom: what is your e.u. real gdp call for the next 12 months? simon: we are at 2.2%, which is a decent level of performance. you are looking at 1.5% to 1.6% steady state growth. gap at a that output very -- fairly decent pace. it's the symmetry that is relevant for the ecb because they are looking clearly for single policy formulation for some very, very different output gaps across the euro area. tom: nicely explained, simon french with us and gina martin adams as well. you need a news briefing. here is taylor riggs. taylor: inflation keeps falling in the eurozone even though the region is growing at the fastest rate in a decade. to 1.2% inflation fell

in the year ending this month. the european central pushing for inflation just a low 2%. treasury secretary steven mnuchin and says president trump is willing to negotiate a u.s. returned to the trans-pacific partnership trade deal. --chin said he be has begun he has begun high-level talks. on capitol hill, a battle over concealed weapons could jeopardize passage of new done laws. gun rights advocates in congress want to expand the ability of people to carry concealed weapons across state lines. they say that has to be part of legislation to toughen ground checks for gun buyers. factory output fell in japan by the most in almost seven years. industrial production shrank 6.6%. that's the most since march 2011 when japan was hit by an earthquake, a sooner mommy, and a nuclear meltdown. a drop in retail sales indicate

read -- global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. 10 conservative party lawmakers have backed an agreement or amendment calling for the u.k. to keep close ties to the european union after brexit in --threatened theresa may's survival. david merritt joins us now. simon french and gina martin adams of bloomberg intelligence are also still with us. david, welcome to surveillance. simon is basically doing back of the envelope calculations. you have 10 pro e.u. and you may that go them labour other side. one mp could make the difference.

corbetthen you and mr. -- mr. corbyn came out -- he saw an opportunity. labour saw an opportunity to the feet the government on -- defeat the government on this issue. this boat has not yet been scheduled. has not yet been scheduled. they have not actually got it on the agenda. how long can they kick the can down the road before they have to face up to this vote? right now, the numbers are looking bad. the strategy the government can't employ his bite -- can employee is by making it a vote of confidence. they will call the bluff of the rebel tory. would you rather bring down the government and cause a general election? conservatives are kind of neck and neck in the polls. a lot of those tory mp's thinking about rebelling may be worried about their seats.

that is probably the nuclear option she could undertake. it will become an issue of confidence in the government. this is a huge part of her strategy she has laid out for a long time on brexit. there is potential now for her to have to step down. thisas her big speech friday. is she going to be able to come out with some language that manages to appease or different -- diffuse this question argument? you saw mr. carmen calling for a customs union, not the existing customs union. will she come up with some repose about customs arrangement which will mean the amendment will cease to be so dangerous for her? francine: no. i am no political scientist, but this could be cherry picking. are you monitoring a jeremy after prime minister these rebellions on both sides and what would that do to the economy? simon: we are from the perspective of this trade bill,

morph quickly into a vote of confidence in the u.k. government -- does potentially trigger a general election quicker than it is next slated for in may of 2022. there is an impasse. it is inconceivable that jeremy corbyn would not be at least a decent set of odds to take over running in the u.k.. -- this isstrating your politics. there's no economics brought to bear as to whether a customs union, the customs union, or the single market is in the best interest. it's all positioning in order to win parliamentary support or defeat the government of parliament and trigger an election. i look at all of this and we go back-and-forth and from a

distance, what screams at me is the tories, the conservatives do not know who to replace prime minister may with. is there an obvious candidate out there? you are absolutely right and this is the thing that has held her in this position so long. how long have we been talking about her struggles and how shaky her administration is? there is no one who can seemingly step up. there are people who would like the job, but they are all very divisive because they sit on either side of this debate within the party about the relationship with europe. there is no one who was a front runner. no one who seemingly could take the fight to labour. conservatives need someone to put distance between them in the polls so people feel comfortable about going into another election without sort of disaster we saw last year when they lost to be parliamentary majority. that sort of weakness in the bench seems to be mrs. may's

biggest strength in what is keeping her there. tom: i am as guilty as anybody and what do i know, all of our coverage is london, london, london, more london. david: the brexit vote was not decided in london, it was decided in the more remote parts of the country and the polling their bank.ed people are still very much behind the idea of separating from the european union. it looks like it would be a similar result with another vote or difficult to predict. a lot of these laces are labor heartland's -- places our neighbor heartland -- a lot of these places are labour heartlands. mps saying this has been a gift to them and it will increase support for the conservative party amongst

places that have traditionally supported labor. this is a very complex issue and its varied around the regions of the u.k., including places like scotland, northern ireland, which is closely impacted. the polls are really all over the place at the moment. as we talked about a lot, traditional party allegiances the face of down in this big question facing the united kingdom about its relationship with europe. francine: look at that euro pound level. it has been kind of trading sideways for the most part of the last nine months. what needs to happen for that to break away? think a breakdown in parliament you mentioned about a change of government, i think that would see a move closer to parity versus the euro. i think one of the reasons why there was a lot of interest in that chart about six months ago was because people were obsessed by parity arrangements. we had similarity with euro-dollar a couple years ago.

like that never trade on straight lines. on the flip side, if theresa may can pull off what very few people expect on friday, a compromise within her own party and there is a way forward with , than theagreement way the eurosterling is positioned, you see strength in the opposite direction. any real guarantee is it will be -- there will be vol going forward. francine: if you look at the ftse 100, most of the companies are so international they are not dependent on the u.k. economy. it's interesting because i think there is definitely a brexit discount. look aty sector-adjusted margins comparing the u.s. equity market margin to the u.k. equity market margin, you get an equivalent margin level, but there is a discount for u.k. are shared -- --. shares relative to use

u.s. shares. these are still very international stocks. -- if the currency doesn't selloff, they will receive a little bit of a detriment and that is why smaller companies in the u.k. have performed bit better. they are more exposed because they are bigger traders. we are seeing a little bit of a brexit discount. if you get resolution on brexit, just listening to this conversation, it seems like this will be a years long issue being reflected in the equities. tom: gina martin adams, thank you so much. we continue with simon french and i'll forget lawrence summer coming up in a little bit on the american -- and don't forget lawrence summer coming up in a little bit on -- coast-to-coast, robert moon and karen moskow, it

is the best morning briefing in business radio, no question about that cleared -- about that. please stay with us worldwide. this is bloomberg. ♪

♪ ."m: "bloomberg surveillance francine lacqua and tom clean -- tom keene. we need to do a major shout out to our team. yesterday was insane news flow, the knock on effect of what we saw with china and the sky discussion. is there any new sky news story this morning? francine: not for the moment. tom: is there any london story? francine: not for the moment. there are london stories. on sky, i saw a lot of research on why this makes sense and what the various contenders and bidders are going after. it has been less than 24 hours on the talk is we could see another offer, a higher offer

from one of the contenders. we need to give it time. i have no insider knowledge. tom: that is where i want to go. my pro tip, you don't want to --g out at the little bar you want to be in the main room, the garden room as you come in the front door. you need to plant yourself there every lunch for the next few days to drive this story. francine: done. tom: let's drive forward the story on china. this is front and center for many. gina martin adams with us and simon french with a briefing. simon, everyone was stunned by this announcement from what i can tell. what is the backdrop of china economic growth that enjoys almost a dictatorship? how strong, how persistent and resilient is that economy? simon: there are plenty of lawmakers around the world that

look somewhat jealously at the advantages the -- has. it does not allow you to push through difficult reforms. if you look at the data out overnight around the chinese pmi, part of what was suppressing those is a big move on environmental control with these limiting industrial outputs around the winter months. given that this is always a difficult thing, it it is politically fractious in the u.s. as it is in the u.k. and -- eurozone, prime minister doesn't have to worry about that. from a democratic standpoint, from a health of democracy standpoint, you have concerns. from an economic standpoint, my frustrations with a lot of policymakers over the last 3, 4, 5 years have been the inability to grasp -- questions. is without question

the chart of the week. this is exports in the united petroleum. what path is america going down if we do ross navarro trade sanctions with china? gina: it certainly looks like we are going down the wrong path and i would suspect that to only continue further. the one offset to this is the fact that the dollar is effectively making u.s. exports more attractive. that is hard to overcome even with policy members. generally, economies are going to find the cheapest source, the most effective source of goods and when the dollar declines as much as it has come about 10% over the last year, that is helping keep that a float. imagine what that chart would look like if the dollar were rallying. it tells you a lot about what is happening. tom: bring up the chart again.

i cannot convey how in the last 72 hours this is the chart of the american economic zeitgeist. francine: if you look at trade -- i will try to get it made, if you look at asian economies and we know trade amongst themselves and china has increased and i look at data today from china saying global trade is cooling appetites.ctories' some of the global customers that are buying products from china will be cooling off. skirmish, a trade -- war, what ever you want to call it, how much is china lose? gina: a lot. this is a very export dependent economy. we think the u.s. certainly can survive any sort of trade war better than most economies. the u.s. index itself can survive better than most economies largely because 65% of sales in the s&p 500 come from within the united states. it's a very domestically oriented stock market relative

to a lot of the global stock markets. i think 40% of china's gdp comes from investment, which is very sensitive to exports at this point. if we do have some sort of trade skirmishes and china does receive the brunt of the damage. it depends on where the trade skirmishes exist because china has been expanding within the eastern region and expanding in trade with europe. can those economies survive without the u.s.? this is a u.s. focused traded skirmish that involves -- you could make the case that those economies will develop their own trade partnerships and i think that is part of the signal sent by the administration when they exited tpp. developountries, will our own trade relationships absent the united states and that is the danger the u.s. is entering. francine: gina, thank you so much, gina martin adams with bloomberg intelligence and simon french both stay with us. inc. -- if you have questions

about trade or the money from , a difficult question to simon on pound, you go to tv videond click under the screen and we will put that question to our guest next. ♪

♪ this is "bloomberg surveillance." i am taylor riggs. in china, hna group is planning one of the biggest job cuts ever for a single company. the company will cut about 100,000 employees, roughly one fourth of its workforce. this is all according to distressed intelligence -- hna has been selling assets to reduce tens of billions dollars in debt. there could be a traded skirmish between mexico and the u.s. according to people familiar with the matter, mexico will place retaliatory tariffs on american products if president trump includes it on a risk of nations that would face duties on a steel. papa john's pizza chain is

ending its longtime partnership with the national football league. that is after a decline in tv ratings and a controversy over player protests. papa john's says it will focus on marketing with 22 individual nfl teams. in november, the founder of papa john's blasted the leak saying falling ratings hurt -- league saying falling ratings hurt pizza sales. tom: bring it up right away, riley, if you would. total of france. this is the famous description screen on the bloomberg, a dividend of 5.2% near zero dividend growth. gina martin adams with us and simon french. gina martin adams, is this preferable to u.s. valuations? do i want a low pe and do i want a big fat dividend right now? gina: well, when you look at today's valuations for the broader european equity market relative to those of the u.s., they are exactly where they were

a year ago. you have to make a pretty big argument that something is going to change in the year ahead relative to what happened in 2017 because u.s. stocks obviously performed well the spite the valuation gap existed last year. if you believe oil prices are going to rise and the euro is going to fall relative to the dollar, you want to take advantage of the valuation gap because the biggest valuation gap in the sector level are in the energy space. in the oily is sensitive and commodity sensitive areas within the european exchange. very different argument than the -- what we have had last several years. a valuationity from perspective is currently the commodities space relative to u.s. shares. tom: very quickly here, simon french, is europe becoming more anglo-american?

do you see a corporate ethos that is finally shifting? simon: culturally, that certainly is the direction of travel. where the direction of travel is on -- and where the absolute level is there remains a large gap that needs to be closed, but there are key reforming voices and macron trying to push that agenda. he has been pro-business certainly in terms of willing -- wooing companies. that is set to continue. so: simon french, thank you much. gina martin adams, thank you so much. coming up, a conversation with lawrence summers. this is bloomberg. ♪

♪ tom: this morning, the chairman powell charm offensive plans the yield curve. the two-year migrates ever

higher. there's a bid to the dollar. the global macro tribe ta are crushed amid significant epsilon and in this hour, steve eisman on the big vix. as well, mr. kushner has a bad day. aneral kelly -- maybe goodwill ambassador. good morning, this is bloomberg surveillance. let it go. ♪ let it go do you want to build a snowman with francine lacqua -- mansion house -- ♪ ♪ francine: i think we should probably let the singing go. stocks are actually losing some of -- they are off the day's lows are it it could be very disruptive if you are going around london. we are just not used to that. bbc.and now we mimic the

is there like a foot of snow in scotland or wales? francine: there is a lot of snow. there's probably as much snow today in scotland that there is in rome. it's the beast from the east that started in southern europe and it is coming kind of north up toward scotland as well. tom: i thought steve eisman was the beast from the east. we will get to him as well. taylor: presidential son-in-law jared kushner has lost his top security clearance. that means kushner can no longer attend some meetings of the national security council or see more related intelligence material. he is still waiting for the fbi to complete a background check. chairman jerome powell has opened the door for the central bank to raise interest rates four times this year. powell acknowledge stronger economic growth may lead policymakers to rethink their

plan for only three rate hikes. it was his first testimony before congress and taking office. the trump administration has imposed stiff tariffs on aluminum oil from -- foil in the u.s. below market value. china says it is strongly dissatisfied. the conservative party's rebellion against theresa may's grexit policy is growing. -- brexit policy is growing. -- close ties to the european union after it leaves. that attempt to reverse may's position could threaten her political survival. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: let me do a data check right now. equities, bonds, currencies, commodities. curve flattening, thank you

chairman powell. 1.63, a higher two-year yield against the flat 10 year yield. next screen please. the vix, 18.03. there is the two-year yield, that should be green up two basis point 2.2% on the yield. francine: this is what i am looking at. stocks sliding after we heard from jay powell and that started in asia and continuing in europe read we are doing crazy signals to get my board up. the treasury yield if you look at 10 year yield is nearing a four year high. the dollar steady after tuesday's jump. there it is, we've got the board. stocks in europe down 0.4%. tom: that is the snow causing transmission issues across the atlantic. there were no transmission is used yesterday -- issues yesterday -- he spoke boldly and clearly. let's listen to chairman powell. >> my personal outlook for the economy has strengthened since

december. again, each member of the fomc will be writing down a new set estimates ofs and appropriate monetary policy as we go into the march meeting. what we have seen is incoming strengtheningests in the economy. we have seen strength in the labor market and data that in my toe will add some confidence my view that inflation is moving up to target. this policy changes can have an effect and changes of this size can have an effect and that can be seen in the path of policy. flattening of yield curves in the past have been a precursor -- precursor to recession. in prior sessions, the fed had to raise rates quickly to hold inflation down. that is not the situation we have now. tom: jerome powell yesterday. joining us now, just missing the snow in the united kingdom

speaking at the oxford union, steve eisman of newberger bergman. more important, someone that got 2008 more than right. wonderful to catch up with you again. i want to get to alternative investments in a bit. and your world, du care about the economics of a fed chairman? yesterdaygot excited about things they should not get excited about. they got crazy because he said the economy is strengthening. tom: everyone in global wall street is listening to you this arning after what seems to be -- february. the guy is looking at the big picture and what the so-called breakss do when all hell loose like we saw with the vix, but more against -- with correlated assets. what is it mean for the hedge fund industry? steve: i think those are two different questions. what you saw in february -- we

are gradually going through the end of easy money and so rates have gone up. when i think -- when rates went above 2.8%, it somehow triggered algorithmic formulas. the trading in early february was not done by human beings, it was machines. i think we are going to have stillolatility and i think the direction of the market is still largely up. francine: good morning. are we going to see much more or many more algorithms or are we going back to active investment? steve: i think you are going to see both. i think what is going to happen is because rates are going up, you are not necessarily going to see a market correction, but you will see a lot more dispersion, which will mean more opportunities for long and short. i think this is probably very good for active managers and hedge funds. francine: where do you see this volatility coming from?

you said actually the kind of and the vix blowout a couple of weeks ago was mainly algorithm. is there anxious this in a market that will be triggered by something or do you think it will just be sporadic moves because the market does in a how to price something? steve: i think it will be sporadic. we have gone from an environment of very low growth, very easy money, and because of easy money, all asset classes go up to a stronger economy, not easy money, and dispersion. i don't think dispersion necessarily equates to correction, but i think it means more volatility and more opportunity for stockpicking. tom: let's continue this conversation. our erik schatzker is in abu dhabi. he has perspective this morning from a most important individual, the former president of harvard university. erik?

bek: that, of course, would dr. larry summers here with me at the first abu dhabi bank conference. the obvious.ith you have been critical of the trump administration's economic policies. we haven't heard from you since the budget was passed. have you heard anything to give you more confidence in the direction of european -- policy in europe right now? larry: the economic statistics are running in a pretty great way. that is an indication of great underlying economic strength, our capacity to manage and technology and the dynamism of america in the private sector. that is a positive thing. i cannot honestly say there is approach i like in the manifest and tax policy in the

budget. it seems to me one of the few things economists of all kinds agree on is the importance of being countercyclical. i cannot really understand why we would be stepping hard on the accelerator at a moment when we are entering the ninth year of recovery and the economy has an unemployment rate below 4%. i don't think the overall budget approach is a prudent one. i think the right budget tries tois one that lower the deficit in good times so there is room to borrow and spend in bad times and now we are in good times, so i do not quite understand what the logic would be of a big increase in the government deficit. i suspect it will manifest itself over time in interest rates that are higher than they otherwise would be, asset prices

that are lower than they otherwise would be, and risks,ed uncertainty and the larger trade deficit, among other things. erik: are you sure the view we are already in a bond bear market if we are already in one? who are think people confident of a bond bear market i think make -- have two tendencies to error. one is they forget about what is already baked into market and three plus fed tightening's this year, for example, are already baked into markets. if that happens, that doesn't -- operate operate as a suppressing fact and the other thing they forget is the broad and deep structural forces operating to reduce real interest rates in the parlance stare fed to hold down our

and those include things like inequality, raising the savings pot --ore aging of the population, meaning less need for capital to equip new workers or house new families. is sitting atne this moment listening to you. i have to imagine he or she is thinking one thing, larry summers is predicting jamming on the accelerator as you describe it and running greater and greater deficits to produce going toowth now is result, as you said, and higher interest rates whether they be fed interest rates or market interest rates and lower asset prices? the question is when? how long does it take for this to happen? larry: i think that is the question that is always impossible in any setting.

geologists can point to a growing tensions in a fault, but they cannot say when the earthquake is going to be. structural engineers can point to bridges where there is fatigue, but they cannot really say how long the bridge will collapse. your cardiologist can tell you there's a problem in your heart, but cannot tell you when the come.attack will imminentave a sense of emergency, but i also don't have -- this has the many, many years to run. erik: we learned a lesson in january about underpriced risk when it came to volatility. without pitting you down to a

forecast because it's clear you are unwilling to be pinned down and i do not blame you come is risk underpriced? calamitous decline in asset prices. larry: i see more people who seem to me too serene and i encounter people who seem to me excessively alarmed. this does not, especiallyto be an -- time for investors. erik: how difficult the situation does this create for the fed chairman? larry: i think it's a difficult balance between the legitimate economyo stimulate the and to get as much employment in growth as possible and certainly to assure that inflation gets back to 2% and maybe even that

the average inflation rate gets back to 2%. at the same time, i think you have to worry about the forncial foundation recovery if you are the fed chair. i think there is a balance to be struck. if heis he in a damned does and damned if he doesn't situation? larry: i think that is portraying things more negatively than i would, but i think it's a balancing act and i person, apowell is a lot of -- with a lot of experience in these judgments and he's an experienced public servant and a real professional. erik: one of the things republicans and democrats seem to agree on is the need for infrastructure spending and yet we still have none. how do we resolve this intractable debate? larry: the republican view that would emphasize regulatory

assigning a and greater role to the private sector and the democratic view that -- to be nervous about those things and put emphasis on more resources through federal programs. erik: what camp are you in? larry: i think this is an area where we need to move from ndther or policies to both a policies. i think democrats are right on the need for more resources, but i think there is truth on the republican side in the importance of streamlining and expanding the role of the private sector. erik: warren buffett is fond of saying that he would another that -- he would never bet against america, something to that effect. the trump administration is talking about slapping tariffs of 20% -- something in the order of 10% on aluminum imports. and aears to be rhetoric

policy target at the chinese more than anyone else. if you had to bet, who is going to win, the chinese or the americans? larry: i think the whole question misses what is the single most important point about trade -- with respect, eric, which is that it is a win-win game and it is not about our doing well so they can do badly. it's about both doing well. i cannot answer a question in terms of who will win, nor would i want to. what i can be pretty sure of is because there are far more americans who work using steel and aluminum, that work producing steel and aluminum, that an effort that is successful in protecting the american market and raising the prices of aluminum within steel is more likely to be the next job stealer than a job creator. erik: where does that take the

country in terms of economic leadership is in fact to the united states moves in that direction? there are mixed signal coming from the administration. they want to put tariffs in place and the treasury secretary says the president is open to starting talks on entering tpp. larry: look, i think the united goods has had a remarkably 75-year period since the end of the second world war. i think our commitment to building a truly global economic system after the berlin wall fell, including russia and , seekingurope in it the work to enable emerging markets to emerge, i think that is a crucial part of it. i worry about any philosophical

move away from american leadership of a global economic system. i think the evidence is overwhelming, countries trade with each other and talk to each other and countries that talk to each other will less likely shoot each other. i think that is as important as any other case for open trade. erik: it is easy to be critical of the trump administration, particularly when you are historically aligned and currently allied with a party that is not in power. is there anything you see that you approve of -- that you like that is worth making note of? larry: i think the trump administration has tapped into some deep trance in american thought that have -- the strands of american thought that has legitimacy. there are people that feel the government works for the top 1%

and works to help with those who are poor and not working and that isn't fair as much as it could be for hard-working -- isn't there as much as it could be for hard-working americans and that group is feeling more represented -- i think that group feeling more represented is more -- important to our society. i think the orientation in in ay toward recognizing changed world with emerging the united states cannot carry quite as large as it had before. carrying that message to other countries, i think that is welcome, too. i may not like the way the -- iges stated and i may think it's a legitimate impulse being spoken up for. erik: i want to thank you very

much for spending time with bloomberg. tom, dr. larry summers with me in abu dhabi. back to you. tom: now we go to washington with the news flow we have seen over the recent 24 hours. joining us now, our chief washington correspondent, kevin cirilli. what can jared kushner look at today in the white house? he is going to go in and there is a desk and he will get a quality cup of white house coffee, full disclosure, worst coffee in the world. what can he read? kevin: he cannot read the intelligence briefings. he did not get the national security -- clearance. this is a time when many have speculated about the influence in the administration. publicly they are saying he will be able to continue to do the work he has always done. that said, to his critics, this is definitely a sign he does not have the influence he could have ablehould he have been --

to get that clarence and in the shadow of the mueller investigations, -- tom: how will the president respond to this? how does he respond to general kelly and how does he set the tone for a white house that cannot get the highest security clearance? foremost fromnd my own reporting, i can tell you it is very difficult for folks to get clearances in this administration. the process has been several months long for aides of all levels. from the senior level to the junior level and that has caused frustration. we are seeing this with case in point, jared kushner. there is that element, but the second notion critics raised is -- jared kushner's process should have been streamlined and that is where the disconnect really is continuing and we have to remember that the security clearance issue all the way last upon the initial

phase of this investigation, it wasn't just that incident. huntal hunt, the great al writing here on the other party. the left shotty attack on the senator from california, activists would present democrats with a november gift. -- preference for ideological purity over pragmatism. one of the few republicans to support the senator was john mccain of arizona, who knows a bit about torture. this up -- goes on to mention her work on covering some of the egregious mistakes on torture after 9/11. it's a really important essay by al hunt. exactly where are the democrats? kevin: what's interesting about the democrats is what happened on the right in the 2016 cycle is at risk for happen binning -- happening in the left for the

2020 cycle. -- senator feinstein in a couple of days with regard to the. test. -- purity test. who is leading the democratic party right now? that is the question every single democratic strategist i talked to on the record, off the record, they do not know and that is a really fascinating storyline we will be following for quite some time. tom: you really wonder what the cpac for the event -- left will look like. kevin: they don't have one. tom: that is the point, exactly. francine, you got important news. francine: this is on brexit. there are two things going on so no one confuses what we should be talking about. first of all, there is theresa may being boxed in at home. we see rebels on both sides, those that want her to be more brexit.it -- pro there is also the position of the e.u.

we are just seeing the released treaty text the e.u. has published today. we understand through press that has had it in advance of us that the e.u. draft treaty demands the ireland question -- that ireland stays in the custom union. remember, it's a border question, something the u.k. said they did not want to deal -- deal with. is also tryingty to bind the u.k. to the ecg ruling into 2030. the position on that from the u.k. and i don't know whether theresa may will change her position to keep the tory party unified, but that is not what they wanted. they never wanted the ecj to roll on the citizens. tom: very good, francine, thank you so much on the further from a in the united kingdom and europe. steve eisman with us. we were watching secretary summers speak and that goes back

to financial deregulation or regulation. this is front and center for you. give us a briefing on the impact, the effect of deregulation. steve: well, we are going to go through -- for the next several years, a massive deregulation of the financial services sector. you have the vice chair of the financial supervision who who was daniel difficult on the industry. you have several people in their seats who have a different orientation. you have maldini -- mick mulvaney. for better or worse and you can talk to me later about what do i think politically, but from a stock perspective, this is positive for the financial services sector. tom: very positive, we all get that, but does it lead down the road to the leverage you observed in 2006, 2007, and 2008. steve: we are so far from that. tom: agreed.

steve: to give you an idea of where i think it's going, citigroup used to be levered 35 to one and is now 10 to one. i think three or four years it will be 14, 15 to one. that's higher, but not anywhere close to where it was. to 14,om 30 down to 10, 15 is the call. francine: is there a catalyst or structurally, that is where it goes? steve: this will be done behind the scenes bureaucratically, que in language people like me will only understand or care about. tom: what is critical here is kafka level -- cfa. francine: kafka, i don't know if i want to be in a confidence--- kafka-esque anything.

do you think we need more transparency? steve: it will be plenty transparent, it will just be done in a way not a lot of people on earth will understand. everyvery panel, interview there is this mystery of where european banking fits in. how does steve eisman approach european banking as an opportunity? steve: i don't see much of an opportunity in european banks. i see opportunity in u.s. banks. they were forced to clean balance sheets rapidly and bring leverage down rapidly. the europeans are taking a much slower, i think wrongly, attitude and still constrained by leverage and will be for years. tom: i have had the privilege of going to newberger bergman -- neuberger berman's lovely skyscraper. there will be a skyscraper 75 stories, what is the symbolism for new york wall street that they are going to build up to

2024. steve: it just tells you the industry is going to be more profitable. i don't put much symbolism in that. tom: there's got to be a risk out there. we were talking about hedge funds and the challenge of the of epsilon at the right side the equation. what is the risk you see if it's not leverage? steve: i don't see systemic risk these days. tom: then why are hedge funds so underperforming? steve: i think because in a zero weight world, it's not intuitively obvious how to allocate capital. in a world where rates are significantly higher, i think it will be easier for both active managers and long-short managers to outperform. tom: this is a critical statement from mr. eiseman. when we get an actual nominal rate rising and critically, the inflation-adjusted real rate rising, that is a quadratic impulse, the first rate

increase. the second rate increase has an effect. the fourth, the fifth, the eighth increase has a huge effect. where is the timeline you think that really slams in -- the oom ph of that really affecting investment? steve: i think it is affecting it now. you are seeing a lot more dispersion, a lot more a la tillie. people are starting to wax poetic about when is the next correction. at it is happening now and that's why i think active management will do better. tom: what are you learning in the first quarter for your investment at neuberger berman that you will lose -- use for the rest of the year? strategy?e eisman erik: i think -- steve: i think with higher rates, investors have less forgiveness for mistakes. there are more things to go wrong and there are more things to go short and you could really construct a portfolio that

could more easily in the past several years. francine: steve eiseman stays with us. we are getting quite a lot of news on brexit and hearing for a michel barnier, the chief negotiator on the commission side. he is giving a press conference in brussels, talking about the need for brexit talks to go faster. this is the situation at home. theresa may is having a tough time. we were hearing from rebellion within the tory party to make ,er aggressive with the e.u. and now we are hearing a rebellion on the pro-european side, with a lot more lawmakers putting pressure on her. the e.u. released a text on how they see the compromise on brexit going. it is unlikely that theresa may will say yes to a lot of points the e.u. has put forward.

let's get straight to the bloomberg first word news. taylor: inflation keeps falling in the eurozone even though the region's growing at the fastest rate in a decade. fell to 1.2%ation in the year ending this month. the ecb is pushing for inflation just below 2%. treasury secretary steve mnuchin says president is willing to negotiate a u.s. return to the transportation test tpp. attacked the agreement while campaigning and pulled the u.s. out after taking office. overpitol hill, a battle concealed weapons could jeopardize passage of new gun laws. gun rights advocates want to expand the ability of people to carry concealed weapons across state lines and say that has to be part of legislation to strengthen background checks for gun buyers.

factory output fell in japan for the most in almost seven years. that is the most since march 2011 when japan was hit by an earthquake, tsunami, and nuclear meltdown. exports remain strong but a drop in retail sales indicate domestic demand is still a problem. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. to buys closing its deal monsanto. it expected it to be completed in the first quarter and the company says it needs more time. once finalized, the $66 billion deal will create the world's biggest producer of seeds. we are here with the bayer chief executive, werner baumann.

thank you for joining us. you kept the door open to more disposable as the monsanto deal drags on. what kind of disposals would you be thinking of? werner: thank you for having me, francine. we are very confident we are going to close this transaction in quarter two. it is slightly delayed because there is more analysis going on, but we are in very good and constructive discussions with the most important regulators, the department of justice in the u.s. and the european commission. in terms of scope of the best teachers, we announced in october last year -- divestitures, we announced we would divest the last part of our seeds business and herbicide platform, and we have also announced we will be divesting of our vegetable seeds business.

there may be other things that might still be discussed, but that is for the time being what is in scope of the disaster chairs. -- divestitures. francine: what will you focus on to try to fix the problems at the other units? werner: first of all, we have had another record year in pharmaceuticals, with growth above thegain in 2017 pharmaceutical markets with top growth products reaching $6.2 billion -- euros, and growing roughly 16% overall. a strong advancement of earnings. on the other hand, we had two issues. one is the consumer health business in line with other businesses facing a fairly difficult competitive situation in the u.s. was further enhanced by two

products that were recategorized from being over-the-counter to prescription only in china. crops, we saw in a brazilian oversupply situation with chemical products. we took the lead in addressing it and we have made good progress in the second half of 2017 in addressing the situation. francine: you were just talking about the consumer health unit and saying it was quite difficult competitively. why hold onto it? werner: we are one of the biggest consumer health businesses in the world. as an look at bayer iconic brand in health care, it has tremendous value. if you look at some of our very large brands such as bayer aspirin, what a wonderful brand

and what a strength we have built over more than 100 years. we are quite confident that we will overcome some of the difficulties that the industry is facing right now, and return this business to grow, growth and strong performance. tom: i am glad you mentioned bayer aspirin, the official aspirin of "bloomberg surveillance." i take it daily. help me with where cash where is going. you have terrific ebitda margins and a buildup in cash flow. how do you keep the ballet going? werner: first of all, i am very happy you are taking aspirin daily. it is great for your health and for cardiac prevention, so congratulations. there are very prominent people doing that as well. coming to your question, we have had some very strong cash influx of course, riven by the

divestiture. 14% if wewn roughly divest over the short to midterm, and that has helped the cash position tremendously. have very strong operating cash flows going forward is a combined company. francine: an apple a day keeps the doctor away. that is the old school. tom: i will go with that. mr. does not like american pharmaceuticals. mr. trump does not like american pharmaceuticals. is he correct that pharmaceutical products in america are in outrage? werner: you know, the american people i think have the right to have access to the best and most innovative products to treat their health conditions.

from what i have learned, president trump is actually a great fan of innovation because innovation creates sustained employment and leadership of the u.s., not only for the local market but also globally. we are taking our business. you have to differentiate between innovative pharmaceutical industry and the generic industry, which is quite different. tom: i do not know if bayer is figured into this, but 99% of america is buying their drugs out of canada because they are .ramatically cheaper what leadership would you like to see from the president of the united states to straighten out prescription pricing in north america? werner: i think what people are very concerned about is raising co-pays. that is very much a health care provider and insurance issue from everything i can tell you it -- can tell.

of theare appreciative products that treat health conditions that might not have been treatable in the past, and that is what we are signing up for, to provide better health care for people, whether it is pharmaceutical products, health care products, or in the nutrition field with our crop business. monsanto isce complete, does it make sense for you to have agriculture and the health giant united in one, or would you consider a split? werner: we are in the business of building leading businesses in industries that we understand well and that we have capabilities that allow us to lead in these industries. if we look at the history of the company, we have been actually very successful in over-the-counter medicines, in prescription medicines, and also in chemical crop protection.

what we are doing now is the combination of chemical crop protection and of course seeds and trades and agronomic advice and platforms to further advance our capabilities and our business. these are the businesses we think we have a right not only to play in, but also to lead. tom: thank you so much. werner baumann of bayer. we will continue our discussion with steve eiseman of newberger berman with what we see on the markets, and housing securities across america. it is a winter wonderland. no, it is not winnipeg. it is not edmonton. it is london, a beautiful shot, in the distance st. paul's cathedral. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. planning one of the biggest job cuts ever for a single company, cutting 100,000 employees, one fourth of its workforce. -- hna has been selling assets to reduce tens of billions of dollars in debt. the could be a trade skirmish between mexico and the u.s. mexico will place retaliatory tariffs on american products of president trump includes it on a list of nations that will face duties on steel. dutchonomy mr. meets with minister meets with wilbur ross today. papa john's ending its longtime

partnership with the national football league. papa john's says it will now focus on marketing with 22 individual nfl teams. in november, the founder blasted the league, saying falling ratings hurt you to sales. that is your bloomberg business flash. tom: maybe a bloomberg surveillance head up, we just spoke with kevin's a really about the challenges at the white house between mr. kushner and the family and general kelly. -- might get back co's drives that conversation forward. now on the short-term interest rate zeitgeist, steve eisman is with us. we are pleased to bring in jerome schneider from pimco. how long is a two-year yield? ofome: we have seen a backup

100 basis point in two-year yields over the past six months or so. rates seemfront end relatively attractive to hide out. what does it do to steve eiseman's world? important point, looking at the -- over the past six months of the year we have seen funding spreads actually remain static and steady compared to where assets fred's have been. funding for hard assets has been competitive but has not really compel -- recalibrated. as nominal rates move higher, it will become more difficult to finance and hit those targets. one other point to make is that financing spreads or the cost of financing over libor generally does not recalibrate as quickly

as the asset spreads do along the way. do not expect a widening as quickly, although the nominal rate will clearly increase along the way. francine: what did you hear from jay powell yesterday? we are going for four hikes or just that the tone will shift and the u.s. economy is doing better than expected? i heard optionality, preserve optionality along the way. it is likely 3, 4 hikes. he was clearly speaking his opinion but has not gotten fully around the table on what the entire board will be thinking about. from an important point of view, to me what it said is pay attention to front end rates moving higher and the market, architect distance need to be paying attention to the fact that ultimately rates in 2019 and 2020, if conditions improve and financial conditions remain status, the fed will continue

with what we have seen for the better part of the past few years. the market should be on its toes to expect recalibration in rates beyond 2018 and looking at 2019. francine: if you look at the 10 year yield, does it go above 3% quickly and what does it do once it is above 3%? jerome: volatility will be emanating from the marketplace as we look to recalibrate. as we get to higher rates, 3% and beyond, you will have more dire -- buyers and more demand. it is something that is simply going to be iterative along the way and will propel volatility. tom: let's bring up the acclaimed famous btmm screen at bloomberg, the money market screen. steve eisman never looks at this. steve eisman, here is jerome schneider's world.

within all of our derivative systems, does that come up -- process or is that a symbol of normality? steve: we are moving toward a more normal world. that is healthy. tom: you take the same effects in the short-term space as you would with the two-year, 10 year? steve: we have gone through a period that is an aberration in history and we are moving towards normality, which will provide volatility. tom: is it yields up, price down? in the short term space that works. steve: unless you focus on capital preservation. tom: are you focused on capital preservation? steve: i like to make money. tom: francine? francine: capital enhancement, that is what you focus on.

if you look at the u.s. economy, is there a chance that it overheats? jerome: that is the job of the fed, and the fed does not appear to be behind the curve, given the context of the testimony yesterday. the response function will remain iterative and they will expectn optionality, so interest rates to increase, three rate hikes or more this year. we are seeing that for more people around the table, including williams and dudley. most importantly, it is the fed's job to reconcile and recalibrate expectations so we ultimately see a tightening of financial conditions over the cyclical horizon. that is the goal and what we need to be paying attention to, recognize the fact that the rate cycle has ended. very bad about anticipating the terminal rate at the end of the rate cycle, so we have to keep an eye on subtle recalibration's the fed is doing.

francine: how do you make money in this kind of environment? steve: the sector that benefits the most is the financial sector. higher rates, deregulation. i have not been this positive on the banks since the 1990's. that is a long time. tom: i am positive on the banks as well, but that speaks to the financial system. within your space, does that signal good news for mr. moynihan? jerome: it signals good news and that they can keep the deposit rate slow, and that means they have cheap money to borrow. ultimately, they will have to pay more. we do not necessarily see big deposit cds recalibrating with the fed increase. thinke had to ultimately about is how as an investor, you capture these yields going further. things that have benefited from the recent selloff are quite interesting. tom: single best chart.

francine, to me, the like that in the background how we do that? francine: very good. tom: what i want to look at is your single best chart. lots of good articles. peter goodman writing in the new york times yesterday. francine's work on italy, italy, italy. this is age 25 and under unemployment in your italy, and it is a gorgeous chart, to 2007 with a broken under 20% unemployment, up to 32% unemployment right now. that speaks volumes, the challenges of italy. francine: it goes to what the election is about. i think it is jobs for the use. -- youth. people will vote on immigration and of course on their economic future, including tax cuts,

which have been promised by some parties. if you look at the numbers, you are not sure about the balance budget, but the unemployment is huge. you can see it coming down, which the political class in power has been saying. you look at that and say, it is not coming down fast enough. you look at the structural reforms needed, whatever happens, it will be painful. tom: you are looking at low interest rates in europe, but not low in the same way the u.s. has low interest rates. is it about a malaise? steve: we will ultimately have to see structural changes come through and recognize the fact that from a molitor a policy perspective, they are behind us -- monetary policy perspective, they are behind us. tom: i want to spend the rest of the time with you on what alternative investment managers have to do to underperform.

are they under diversified? do they not have the focus you had in 2006? or is it just there is not a gift on a silver platter? steve: when you think about how you value a company, you model the cash flows and discounted back given interest rate. zero,oblem is rate of that number is infinite. you cannot allocate capital. we are moving to a world of real allocation of capital for the first time in maybe 10 years, and it will change through all of active management. tom: what do the big names that have underperformed -- they get all the press -- but the people who are less visible, a long-short hedge fund, one year, two years, three years underperformed, at that kind of shop, what has to change? or do you go out of business and start over? steve: i think the hedge fund

fees will come down because of the underperformance. even if the industry does start feestperform, the focus on of investors is relentless and will not change. francine: an open question to you both. do you follow brexit? headlines,e barnier the chief negotiator on the commission side. kennett rock your world? jerome: basically, this will be a long-term discussion and prognosis. ultimately, it will have impacts on the pound. no immediate takeaways for us at this point in time. our quarterly strategy session is beginning next week so this will be at the top of our thought process, to recalibrate to this new information from the past day. tom: -- francine: what about you ? is the u.k. a good place to be in or look at?

steve: i tried to have mercy for theresa may. she is in a impossible situation. people on her right wanted hard brexit and she is trying to cater to the business community with a soft brexit. i have no idea how she will get out of this. we may get to the deadline with nothing. tom: all of us at bloomberg, steve eisman, if you believe in the resiliency of the united kingdom and london, are you buying a third property in london? steve: not anytime soon. tom: steve eisman and develin about real estate -- ambivalent about real estate in the united kingdom. give us a final briefing. francine: i like the fact that steve eisman was saying he wants to be kind for the moment on theresa may. not many are kind on the prime minister. she has a lot of rebels that are pre-brexit that are pushing her to really have a clean cut with

the e.u., others putting a lot of pressure, saying we will stop supporting you unless you stay in the customs union. nier saying the ecb must have a role. i do not know how she is going to do this. she basically has three sides that do not see i to i et al., and that speech -- eye to eye at all, and the speech on friday, she will have to find a compromise to make these issues bearable. this is bloomberg. ♪